The Government has agreed to restore deductibility for mortgage interest on residential investment properties, Associate Finance Minister David Seymour announced this afternoon.
The previous Labour government announced changes to mortgage interest deductibility rules in 2021.
They were intended to cool the housing crisis, but fuelled concerns rent prices would rise.
The new government promised the policy among tax reforms announced last year.
"Help is on the way for landlords and renters alike. The Government's restoration of interest deductibility will ease pressure on rents and simplify the tax code," Seymour said.
"We are phasing back in the ability to deduct interest expenses from 1 April 2024 when all affected taxpayers will be able to claim 80% of their interest expenses and 100% from 1 April 2025 onwards.
"Landlords have been hit with a double whammy of rising mortgage interest rates and increasing interest deductibility limitations during a cost-of-living crisis."
The costs are "inevitably" being passed on to tenants, Seymour continued, driving high costs.
"This heaped pressure on landlords and renters alike by reducing the number of rentals, pushing rents up, and making it harder for Kiwis to save for their first home.
"Competition helps keep prices affordable. Reducing supply reduces the number of options and drives up prices.
"Removing the ability for landlords to claim interest expenses made residential properties less attractive and reduced the pool of properties for tenants to choose from.
"To overcome New Zealand's many challenges there needs to be an environment where investment and development is encouraged. This change is a step in the right direction," he said.
Labour responds
Labour's finance spokesperson Barbara Edmonds this afternoon responded to the move, saying the Government is "abandoning" first home buyers.
When people are struggling with day-to-day expenses, the Government has decided to give approximately 346 landlords who own at least 200 properties each around $464 million between them,” said Edmonds.
“The decision shows where the Coalition Government’s priorities are. It’s not lunches in schools, the smokefree generation, or continuing the Cook Strait ferries, it’s mega landlords.
“The assertion that this will bring the cost of rent down is a wolf in sheep’s clothing, there is nothing in today’s announcement that guarantees tenants will have savings passed on to them as a result.
“This tax advantage for the wealthy is not only set to be unfair for tenants, it shuts first home buyers out from getting a foot on the property ladder. Parents and grandparents who hope for their children to own their own home will realise it is a more difficult path to home ownership than ever before.
“This is tax relief for a certain group of people, not for mum and dad investors. The ripples of this decision will be felt for generations."
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